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Wednesday, November 19, 2014, 08:58

Retail rentals tipped to come down 6% next year

By Agnes Lu in Hong Kong
Retail rentals tipped to come down 6% next year

Businesses languishing under skyrocketing rents may breathe a slight sigh of relief next year, with retail rentals expected to fall by some 6 percent, against continued strong momentum in the office, residential, commercial and industrial sectors, Colliers International said in its 2015 forecast.

The decline is attributed to changes in the spending pattern among mainland tourists, as well as the mainland’s growing attraction for international retailers as the middle-class crowd strengthens itself.

“We believe that international brands will increasingly enter the mainland market directly, bypassing Hong Kong,” said Helen Mak, Colliers’ senior director of retail services.

 “Besides, overseas travel for mainlanders is becoming easier, so affluent consumers are less focused on Hong Kong, akin to an international shopping mall, coupled with the ongoing anti-corruption drive on the mainland. This means Hong Kong has come to the end of 10 years of ‘golden expansion’ in retail,” Mak said.

The lingering “Occupy Central” protests would cast another shadow on retail sales, hampering the shopping interest of mainland travelers in core districts. However, opportunities could also be seen, with several mid-tier brands arriving to target Hong Kong consumers.

The city’s depressed shopping spree for luxury goods has put mid-tier luxuries, or affordable luxuries, into the spotlight, such as Longchamp, Coach or even Starbucks. Unlike the traditional concept of luxuries, these mid-tier brand commodities are usually of decent quality and cost less.

Mak said the more favorable prices for affordable luxuries is in accordance with the spending pattern of the mainland’s rising middle-class, and Hong Kong’s growing mid-tier market will also prompt restructuring in the retail sector.

But rising sales of mid-tier products would not be able to make up for the recession fueled by the loss in total sales of luxury items. Census and Statistics Department figures  for the first nine months of this year show that total retail sales had decreased by 0.4 percent in value over the same period a year earlier, while the drop in sales of jewelry, watches, clocks and valuable gifts was 14.7 percent.

Another promising factor in the coming year is the flourishing catering industry, which relies mainly on local consumption. Besides, steady interest and strong local purchasing power in non-core shopping districts are backing retailers.

Colliers International said the strength of mid-tier brands and the positive local consumer market will encourage foreign funds, developers and investors to remain optimistic about the potential for growing retail demand in Hong Kong, which should deliver good returns in the longer term.

“We believe future investment in shops will focus mainly on non-core shopping districts, and we don’t see a potential drop in shop transactions as well,” said Reeves Yan, director of investment services at Colliers.


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